Monday, March 9, 2015

The Reign of Error in Lateral Recruiting

The legal landscape is littered with lateral partners who didn't meet
the hiring firm's expectations. The underwhelming performance of lateral partners
includes a range of ways in which laterals can fail to meet the firm's original
expectations. The most obvious is a failure to bring their clients to the firm.
But lateral partners also frequently struggle to develop new clients or are
ineffective in promoting their practice in a new firm. Some leave their new
firm too quickly while others simply don't get along well with others.

What were we
thinking?

How can law firm's improve the success rate of lateral hires. That's a central
question posed in a February 9th, 2015 article in The American Lawyer entitled An Rx
For Lateral Heartache, by professors William Henderson and Christopher Zorn. They
point out what they believe may be the most prevalent error in the recruiting
process, confirmation bias.

"We believe
the biggest source of error in the lateral hiring process involves a form of
motivated reasoning, or emotion-based decision making, that works like this:
The mind has a tendency to lock into conclusions relatively quickly. We use our
mental processes to look for evidence that supports our views, while evidence
that would undermine those views is discounted or ignored. Psychologists refer
to this phenomenon as confirmation bias."

Henderson
and Zorn may be on to something here although I don't think it fully explains why
so many laterals pass muster only to disappoint. Certainly the process is more
complex than that. There is, more likely, numerous errors being made or cognitive
bias' at play in the due diligence process.

Out of
curiosity, I looked up a list of behavioral science theories and cognitive
bias' and tried to match them with my own experience observing the interviewing
and due diligence process. The number of them which applied were striking. But
to make my point, I'll cite a select few with the caveat that these bias' are
not unique to the legal profession. First, there's the Halo Effect which is the tendency for a person's positive traits to
"spill over" from one personality area to another in others'
perceptions of them. "She is very personable. She must also be good
at developing client relationships." There's also the In Group Bias, the tendency for people
to give preferential treatment to others they perceive as similar to them "They come from a really good firm. They will fit in well here." Or,
how about the Self Serving Bias, a
tendency for people to evaluate ambiguous information in a way that is
beneficial to their interests. "I'm not sure why they would leave
such a good firm. We must offer a much better opportunity for them."

Besides the
cognitive bias' that can plague individuals in the interviewing process, I have
additional theories about why firm's who rely on their own partners' to interview
candidates may not produce a clear understanding of the candidate's potential. For
one, these interviews may not to be broad enough in scope. That is, interviews may
be limited to the technical abilities of the attorney and the attorney's
likability or personality fit with the partners. In my experience, interviews
do not attempt to gauge the candidate's managerial and work style, their
personal and professional attributes and, most importantly, the strength of the
relationships with their clients and referrers.

A second
theory, is that lawyers don't ask the tough questions of their potential future
partners, especially regarding the strength of client relationships. Most
likely this is because pointed questions might be perceived as adversarial or
even challenging of the candidate's integrity. Or, they may be perceived as
'intelligence gathering' on the candidate's clients, which at that point in the
recruiting process, could be off putting to the candidate. As a result, the
critical intelligence needed to determine whether the candidate truly has a
portable book, information that forms the basis of the 'deal', goes uncollected.

Similarly, I
suspect motivations are rarely questioned. For instance, the question of why a
partner is leaving the partnership is an area deserving of thorough exploration.
The most common explanations rarely face scrutiny because they are the expected
explanations (another form of confirmation bias). If the move is upstream to a
larger platform, inevitably the reason is that the former firm doesn't offer
the breadth of practices the client requires. If the candidate is moving
downstream, the clients are resisting the bigger firm's rates. Or maybe the
reason is conflicts but I suspect the steps the candidate took to alleviate the
conflicts is typically not fully understood. There are other reasons, of
course, but the point is that the rigorous due diligence that one would
undertake in, say, buying a business is nothing near the rigor of the process
typical of lateral partner recruiting in U.S. law firms.

In Henderson
and Zorn's article, they re-iterate a solution which I originally presented in my August 11th,
2014 column in this publication, entitled UK
Style Lateral Due Diligence. Both publications propose theuse of independent consultants to
conduct assessments of the lateral's client base and portability, their business
development skills and managerial style. As I pointed out then, the practice is
common among U.K. and other European country law firms. And as Professors
Henderson and Zorn point out, independent due diligence is also the standard
practice in the U.S. private equity industry as well as many others. Bad hires
are costly in revenue and reputation and can hamper future recruiting efforts.
U.S. law firms should consider the proven techniques of their U.K. peers and
add independent lateral due diligence to their lateral recruiting process. Readers interested in learning more about
lateral due diligence and client mobility can request GDC's Seven Predictors of Client Mobility by
sending a request to: eric@groupdeweyconsulting.com.

This article won the BigLaw Pick of the Week award. The
editors of BigLaw, a free weekly email newsletter for those who work in midsize
and large law firms, give this award to one article every week that they feel
is a must-read for this audience.